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Fee-Based vs. Fee-Only Financial Planners & Advisers

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Financial plannerIt’s possible that, at some point, you will feel as though you need hep planning your finances. In such a case, you will want to turn to a financial planner or adviser to help you figure out your best move.

Before you make a decision about picking a financial adviser, it’s a good idea to consider how he or she is paid. We hear a lot about how consumers might be better off staying away from commission-based financial planners, and choosing those that work based on fees. However, when it comes choosing a financial planner that operates based on fees, it’s not always cut and dry. There are two designations that include the use of the word “fee”:

Fee-Based Financial Advisers

For the most part, these are financial advisers that often charge a fee based on “assets under management.” So, you are usually charged according to the assets that your financial planner manages for you. So, if your assets increase and your net worth improves, a fee-based adviser gets more. It is also worth noting, though, that fee-based financial planners can usually also receive commissions for some of the products they get you to use. While some fee-based advisers present you with an either-or (they get commissions or fees from assets under management), others might receive payment from both.

Fee-Only Financial Advisers

In most cases, when a distinction is made, fee-only financial planners and advisers are those that accept payment directly from the client. This means that fee-only planners charge by the hour, the plan, or charge a monthly or yearly retainer. There are fee-only advisers, though, that can be compensated for assets under management. Many consumers are more comfortable paying a set fee, rather than wondering if their financial planner or adviser is steering them toward a product based on commission.

Finding Out How Your Financial Planner is Paid

Adding to the confusion is the fact that sometimes, fee-based and fee-only are used interchangeably. No matter what term is used, though, it is important to find out how your financial adviser is paid, however. Someone whose income is received mostly through commissions might have conflicts of interest built in. After all, if there is a good commission on a certain fund, but the fees are high for you, or it might not fit you just right, the adviser might go ahead and encourage you to invest in the fund, since it will help his or her bottom line. This type of conflict of interest can cost you — even though you might not be invoiced by the financial planner or adviser.

Before you make a decision about any financial planner or adviser, make sure you understand how he or she is compensated. Many people are gravitating toward the fee-only model because it reduce the chances for conflict of interest. The adviser is being paid, by you only, to provide you with guidance that works for you. Many people have a hard time totally trusting a financial planner who receives commissions, since you never really know if the recommendation will really help you financially.

What do you think? What type of financial planner/adviser would you prefer?

(Photo: crbrowning197)

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5 Responses to “Fee-Based vs. Fee-Only Financial Planners & Advisers”

  1. Sun says:

    > Many people are gravitating toward the fee-only
    > model because it reduce the chances for conflict of interest.

    Yup. As I am learning more about personal finance every day, I see what a mess a “Fee-Based Financial Advisers” have done to my parent’s portfolio. I am so disgusted.

  2. Britton says:

    If you’re looking for fee-only financial advisors, two excellent resources are NAPFA (www.napfa.org) and the Garrett Planning Network (www.garrettplanningnetwork.com). Particularly in the case of Garrett, I find that members of these organizations are not only fee-only but highly respected by their peers in the financial advising world.

  3. Scott says:

    Never tried this, but I would think you could also ask your advisor to sign a conflict of interest agreement with you, stating that they will disclose any possible conflict of interest to you prior to taking any action with your account. I think this would protect you in case they did something seedy later without your knowledge. It’s standard practice in most businesses to sign conflict of interest policy forms – this should be no different.

  4. Keri says:

    So, if your advisor is receiving a percentage of the portfolio, it seems it would be to their advantage to increase the portfolio. It sounds like there are three fee structures not just two as fee based may or may not receive commissions on products they recommend. A perfect world would be fee based; no commission on “product”.


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